Bond yields soar as Ireland prepares 4-year plan, Portugal strikes By William L. Watts, MarketWatch LONDON (MarketWatch) — Turmoil in European sovereign-debt markets deepened Wednesday, with yields on Irish, Portuguese and Spanish government bonds jumping on resurgent fears about the ability of high-deficit euro-zone countries to meet their long-term debt obligations. The embattled Irish government, which applied over the weekend for an aid package from the European Union and International Monetary Fund, is set Wednesday afternoon to unveil details of a four-year plan to cut its deficit by 15 billion euros ($20 billion) over four years. “The outline is already known of course, with €15 billion deficit reduction over four years, but the details will tell us where the budget savings and extra revenue will come from,” said Gary Jenkins, head of fixed-income research at Evolution Securities. Standard & Poor’s Ratings Services late Tuesday cut Ireland’s credit rating by two notches, citing concerns over the cost of bailing out its troubled banking sector. The downgrade further soured sentiment on peripheral sovereign debt, strategists said, driving the yield premium demanded by investors to hold Portuguese and Spanish bonds over German bunds to levels unseen since the 1999 launch of the euro. The spread between Portuguese 10-year government bond yields and 10-year bunds widened to around 4.8 percentage points from around 4.5 points on Tuesday, strategists said. The spread between Spanish and German yields widened to nearly 2.4 percentage points, while the spread between Irish and German yields topped 6 percentage points. The cost of insuring peripheral euro-zone debt against default also jumped, setting euro-era records for Spain, Portugal and Belgium, according to data provider Markit. “The cold hard facts are that one country [Ireland] has recently accessed some structural help to deal with its problems and periphery widening seems, if anything, to have actually accelerated,” wrote strategists at Royal Bank of Scotland. “In the short term, the most obvious way of containing widening is for the [European Central Bank] to buy significant amounts of bonds,” they said. “With indications that they are not there yet, our call for periphery to widen further — which we have held for some time and been shouting loudly about since Oct. 29 — remains high conviction.” “The combination of the lack of detail in Ireland’s drawn out bail-out and growing political uncertainty has added to market fears,” wrote strategists at Lloyds TSB in a note to clients. A final figure for Ireland’s proposed aid package from the European Union and International Monetary Fund hasn’t been determined, but a figure of around €85 billion has been discussed, Prime Minister Brian Cowen told parliament on Wednesday. Meanwhile, public- and private-sector workers in Portugal, which is widely viewed as the next most likely candidate for a bailout, staged a general strike Wednesday in protest of austerity measures. Read about Portugal's 'Greve Geral' The move comes after Portugal earlier this week said its budget deficit rose over the first 10 months of the year, although the government remains committed to cutting its deficit to 7.3% of gross domestic product from 9.3% in 2009. “Portugal’s lack of progress in structural reform this year is marking the country out for examination by the bond vigilantes; today’s strikes suggest Portugal has limited appetite for further austerity,” said Jane Foley, senior currencies strategist at Rabobank.

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